7 Enterprise IT Trends to Watch in 2016

Worlds created entirely of clouds. “Unicorns” racing through new landscapes. Data moving faster than the speed of light.

For those of you who don’t work in enterprise technology, this may sound like a fantasy world—or a little like the latest Star Wars movie. But based on my experience as an enterprise-tech investor, first at Intel Capital and now at Battery Ventures, I predict a few of these far-fetched scenarios could become reality in 2016. Here’s a closer look at seven enterprise-tech trends I believe will hit their stride in the coming year.

1. 2016 will be an M&A bonanza.

The recent merger agreement between Dell and EMC was just the start of a consolidation tidal wave I expect to see next year in enterprise IT, where top companies like Cisco Systems CSCO2.57%, Dell, IBM and others command a combined market capitalization north of $1 trillion. They are now locked in a battle with many startups for $300 billion of annual IT spending worldwide that, according to Gartner, is ripe for disruption. These startups operate in hot areas such as cloud computing, big data, next-generation storage and open-source technology. The incumbents are in serious jeopardy, and many will need to take dramatic steps to stay competitive.

Progressive blue chips will recognize this new state of affairs and aggressively get into the acquisitions game to catch up with Amazon Web Services (AWS), the current king of cloud computing. The number-two player, Microsoft MSFT1.94%, could supercharge its hybrid- cloud play by purchasing a private-cloud leader such as Red Hat RHT1.41%. This sort of move could help Microsoft capture some of the hundreds of billions of dollars in datacenter spending now shifting to the cloud. Google GOOG1.15%, under new SVP Diane Greene’s leadership, will get serious about enterprise and cloud and could buy Mesos or Docker to attract “Web scale” workloads from huge Internet companies like Pinterest and Airbnb; IBM IBM1.56% could take the lead in private cloud computing by acquiring an Openstack market leader.

2. AWS is just getting started.

Related to #1, 2016 is the year that enterprise tech will wholeheartedly embrace the public and hybrid cloud. Because of this, AWS is going to experience another record year — on top of the impressive 80% growth it logged during Q2 2015. This division of Amazon AMZN-0.94%could, in fact, become the fastest-growing, multi-billion dollar company in the entire history of enterprise infrastructure. And since CIOs dislike vendor lock-in, the agnostic Microsoft Azure won’t be far behind in signing up new customers, staying firmly entrenched in second place.

3. Open-source software is eating the world – but where’s the money?

Open source will become standard for infrastructure software in 2016, with CIOs adopting an open-source, software-first approach. Early open-source market leaders that have gone mainstream will split into two camps: those that have clear monetization models—like Cloudera*, MongoDB*, Elastic, Datastax, and Mirantis*—and those that have millions of downloads but no revenue to show for it. Some of the more financially savvy startups in the first category are likely to go public next year, forming a strong foundation for more open-source businesses to enter the public markets in coming years.

4. Unicorns and bloodied “unicorpses” will face off.

Next year will reveal the differences between unicorns (private startups whose values exceed $1 billion) and unicorpses (former unicorns whose value has slipped under $1 billion). The tech IPO market’s lackluster performance is already putting pressure on late-stage growth financings, and this new landscape will force many unicorns to make some tough choices.

Fast-growing enterprise companies with strong fundamentals will bite the bullet and bravely go public, even if they have to accept lower valuations than those recorded in their last private rounds – something that happened already with companies like Pure Storage PSTG0.00% and New Relic NEWR-2.59%. I believe companies like these will choose to focus on long-term equity value creation, post-IPO, as has been the case with companies like Tableau DATA-2.10% and Splunk* SPLK3.24%.

In contrast, ex-unicorn companies that spent extravagantly on their businesses could be forced to consider down-rounds or sale options to stay in the game. Note: Don’t confuse the ability to raise money with the desire to spend it!

5. Fast data is just as important as big data.

For years now, big data has been all the rage, but it’s no longer sufficient. With data velocity on the rise, companies must be able to rapidly analyze big data and get sound, actionable advice instantaneously. This will help them better service customers and also bolster their bottom lines. I predict new technologies like Storm and Spark Streaming will be fully embraced by the market in 2016, and we’ll witness the emergence of a new class of real-time applications in e-commerce and financial technology services powered by super-speedy data analytics. “Fast data” is the second iteration of big data, and it will create a lot of value.

6. Security 2.0: Machine learning can beat sophisticated hackers.

This year, you could barely go a day without hearing about yet another security hack at a major corporation or government agency. In 2016, I believe we’ll see the emergence of a new class of security solutions that attempt to outsmart hackers. How? By using “machine learning,” a field of computer science that leverages pattern recognition to extract malicious intent and make predictions about future exploits. The first wave of this trend was highlighted by Splunk’s acquisition earlier this year of Caspida, which uses machine-learning technology to ferret out cyber threats, and the $25 million raised in September by Exabeam, a big-data security analytics company. But in 2016 I predict we’ll see machine learning used more broadly to keep up with, and even pre-empt, sophisticated cyber attacks.

7. The West will look East (not China!) for business opportunities.

With more than 352 million Internet users and counting, India’s mobile and Web-scale ecosystem will become a large marketplace for U.S.-based, enterprise software companies. Indian shopping sites Snapdeal and Flipkart, and transit app Ola Cabs, now represent significant sales opportunity for these startups, similar to what we experienced in the U.S. with enterprise companies selling to Pinterest, LinkedIn LNKD4.35% and Twitter TWTR-3.36% — only the Indian opportunity could be much larger and grow at a faster pace. And with no legacy infrastructure competing for attention, India could be a significant driver for overall industry cloud and analytics spending.

Overall, enterprise-tech startups have immense power to shape and move many industries, but they can’t go at it alone. By working together with well-established companies to further the adoption of open-source software, fast data and cloud computing, we’ll uncover even more new business opportunities— and create strong services that aren’t fantasy, but reality.

Dharmesh Thakker (@dthakker02) is a Silicon Valley-based general partner at Battery Ventures, and previously was with Intel Capital.